10 Dec Key Features to look out for when getting a bank loan
KEY FEATURES TO LOOK OUT FOR WHEN GETTING A BANK LOAN
Written By: Adrian Jefferson
Today, we’ll be checking out other key features of bank loans to look out for, apart from the interest rates provided. These are: a free conversion feature; partial prepayment fees; waiver of penalty due to sale of property; cash rebates or legal subsidies; and interest offset schemes.
Put together, these features might be more important than you think when taking up a home loan, on top of just opting for the bank with the lowest interest rates.
Feature 1: Free conversion within or after lock-in period
This enables you to change your loan package within the same bank without incurring any administrative or conversion fees, which usually range between $500 to $1,000.
If you’re deciding whether to remain with your existing bank or to switch to another bank, this could be a game changer for you. Some banks even grant you this free conversion if they’re offering better rates, within your lock-in period.
Feature 2: No penalty imposed for Early Partial Prepayment within the lock-in period
If this feature is offered by a bank, it essentially means within the lock-in period of your loan, no fees are charged when you make a partial principal payment for your loan, as long as you notify the bank at least one month in advance.
By making a partial prepayment for your loan, you’ll be paying down your principal amount, reducing your total payable interest for your home loan.
Feature 3: Full or Partial waiver of penalty upon sale of property
Bank loan packages usually come with a lock-in period of two to five years, and if you decide on selling your property within this period, a penalty will be charged – an average of 1.50% of your current loan amount.
But some banks will grant you a full or partial waiver, up to 50% off, of those fees charged, as long as you notify the bank at least three months in advance.
This saves you a significant amount of capital which could be used to invest elsewhere!
Feature 4: Cash rebate or legal subsidy
When refinancing your property, costs involved include legal and valuation fees. These fees could work up to a few thousand dollars, depending on your property type.
To help subsidise this cost, most banks include in their loan packages cash rebates or legal subsidies. It would either be in the form of a cash payment directly to you, or the bank might pay the legal firm directly.
But the caveat is that there is usually a 3-year clawback period. If you decide to leave the bank within this period, you’d have to repay the bank the full rebate amount – so keep a lookout for such terms in your loan package!
Feature 5: Interest Offset Scheme
Some banks offer an interest offset scheme, in which if you make an additional deposit into the bank, they will grant the same interest rate as your home loan on this amount, up to a certain percentage at 70% of the deposit amount. This way, the interest accrued from your deposit will help to offset the interest on your home loan which effectively allows you to pay lesser interest on your home loan.
For example, Customer A loans $1.5 million for his home from the bank, and he needs to pay an interest of 1.5% a year. He then takes up the interest offset scheme offered by the bank, and deposits $500,000 into the bank. The bank then grants Customer A a 1.5% interest rate on this deposit, up to 70% of $500,000, amounting to $350,000. This $350,000 will then be earning the same interest to offset the interest on his $1.5 million home loan.
Profile of Author
Adrian Jefferson currently serves as the Inhouse Mortgage Specialist for Advisors Alliance Group.
He is a veteran in the mortgage industry for 15years and personally served more than 3500 individual (Including 3 billionaires) and companies on their mortgage portfolios.
Adrian is also a sought after speaker in the Real Estate & Financial Services industry. He believes strongly in adding value and equipping home owners with updated mortgage information so as allowing them to make informed decision on their mortgage needs.